168. Action Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon 1

SUBJECT

  • Expropriation Policy

Secretary Connally (Tab A) has written to re-emphasize his strong feelings about the expropriation issue, on which I sent you two memoranda last week.2

[Page 438]

On the question of general U.S. policy toward expropriations, Connally supports the recommendation of my memorandum for a presumption that the U.S. would suspend granting new economic benefits to expropriating countries unless and until it was determined that the country was taking reasonable steps to provide compensation, or that there were major factors which required continuance of all or part of these benefits.

On the question of U.S. expropriation policy in multilateral development institutions the recommendations of my original memorandum (Tab B) differ from those of Secretary Connally. Connally does not believe it is feasible to have a separate multilateral expropriation policy and argues that there should be a presumption in favor of negative votes or abstentions on loans to expropriating countries unless decided otherwise (Option I in my memorandum). He also argues against requiring the formal concurrence of the Secretary of State for negative votes in the multilateral institutions on the grounds that they are essentially financial in nature and a requirement of concurrence by the Secretary of State would inject a political element.

There is, however, a significant difference between our bilateral policy on this question and our policy in multilateral institutions. If a country expropriates without adequate compensation, we could delay providing new bilateral development assistance for several months without calling public attention to our actions although privately the expropriating government would be aware of our reasons. If, on the other hand, a loan to an expropriating nation came up for a vote in the Board of a multilateral institution soon after an expropriation had taken place, a negative presumption would mean that, unless a quick decision were taken to do otherwise (which would be difficult given the bureaucratic problems in moving on such questions), we would cast a negative vote. This would immediately focus a great deal of publicity on our act, raise the level of emotion in the expropriating country, and thereby make it more difficult for the expropriating nation, in a face-saving way, to compensate us even if it had every intention of doing so. In addition, for the most part negative votes have no economic effect on the expropriating nation. (Only in the soft loan window of the Inter-American Development Bank would a U.S. negative vote or abstention block a loan.)

Option 2, which my memorandum recommends, calls for deciding votes on a case-by-case basis with no negative presumption. There would be no abstentions or negative vote unless it is determined that it would promote the payment of satisfactory compensation and the effects of such action on other U.S. interests are fully considered. If Secretary Connally, who as Secretary of the Treasury is charged with instructing [Page 439]our Executive Directors in the multilateral institutions, believes a negative vote is in order he is in a strong position to determine what our vote should be.

On the subsidiary issue of the Secretary of State’s role, my memorandum recommends that, because of the significant foreign policy effect of U.S. votes, the Secretary of State be permitted to concur in negative votes or abstentions. However, I have also pointed out that this need not be stated in the formal manner to which Secretary Connally objects. The Decision Memorandum could indicate that it is “understood that the Secretary of the Treasury will seek the concurrence of the Secretary of State on votes which will have a major foreign policy effect.” Differences would be brought to you for decision.

Recommendation:

Should you wish to reconsider this question in light of Secretary Connally’s memorandum, I continue to recommend Option 2—deciding votes on a case-by-case basis with no negative presumption.3

Approve

Prefer Option 1

On the subsidiary issue of the Secretary of State’s role, I continue to recommend that, because of the foreign policy effects of U.S. votes, the Secretary of State be permitted to concur in negative votes or abstentions.

Approve

Prefer no State concurrence

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 289, Treasury, Volume II 1971. Confidential. Drafted by Hormats on September 28 and October 4. Attached to an October 4 memorandum from Hormats to Kissinger that indicated that the memorandum to the President had been revised, with Connally’s views included, and recommended Kissinger send it forward, giving “the President another crack at decisions.” An earlier draft of this memorandum, which does not include the Recommendation section, is ibid. It is attached to a September 28 memorandum to Kissinger in which Hormats noted that the memorandum to the President explained Kissinger’s and Connally’s differing views on expropriation policy.
  2. Tab A is Document 167, Document 165 is attached as Tab B and is presumably one of the memoranda Kissinger sent the President. The other has not been found.
  3. None of the options is checked or initialed.